The United Arab Emirates became an attractive destination for many foreigners to establish their companies due to the incentives provided to the investors.
This has led to an increase in the number of employees and job opportunities and thus competition in the labor market.
In this article, we will set out the conditions and obligations for the application of the non-compete clause in light of the UAE Federal Decree-Law No. 33 of 2021 which protects employees from arbitrariness of the employer on one hand and protects the employer from disclosure of its business secrets and unlawful competition on the other hand.
Legislation and articles related to the non-compete clause.
The UAE legislator mentioned and regulated the non-compete clause in the labor law and its executive regulations in several articles as follows:
Article 10 of Federal Decree-Law No. 33 of 2021:
- If the work assigned to the employee allows him/her to gain knowledge of the employer’s clients or have access to its work secrets, the employer may require that the worker under the employment contract shall not, after the expiry of the contract, compete with the employer or be engaged in any competing project in the same sector, provided that the requirement is specified, in terms of time, place and type of work, to the extent necessary to protect the legitimate business interests. The non-compete period shall not be more than two years from the expiry date of the contract.
- This requirement shall be nullified if the employer terminates the employment contract in violation of the provisions hereof.
- The claim filed by the employer for the worker’s violation of the provisions of this Article shall not be heard if one year has passed from the date of discovering the violation.
- The Implementing Regulation hereof defines the provisions regulating this Article, skill levels, or occupations that may be excluded from the provision of Clause (1) of the current Article, following the conditions and rules specified by the Regulation.
Article 12 of the Executive Regulations of Decree-Law No. 33 of 2021:
1- Subject to the provisions of Article (10) of the Decree-Law, the following shall be observed in the application of the non-compete clause stipulated therein:
a. The geographical scope of application of the clause.
b. The term of the clause provided that it does not exceed two years from the contract expiry date.
c. The nature of the work, such that it causes significant harm to the legitimate interests of the employer.
2- If a dispute arises over the non-competition clause and it is not settled amicably, the matter shall be referred to the judiciary, and the burden of proving the alleged damage shall fall on the employer.
3- The non-compete clause shall not apply if the reason for terminating the contract is attributed to the employer or the breach of its legal or contractual obligations.
4. It may be agreed in writing not to apply the non-competition clause after the termination of the employment contract.
5. The worker shall be exempted from the non-compete clause stipulated in Article (10) of the Decree-Law under the following conditions:
a. If the employee or the new employer pays to the previous employer, compensation not exceeding three months of the worker’s wage as agreed upon in the last contract, subject to the previous employer’s written consent thereto.
b. If the contract is terminated during the probationary period.
c. Any professional categories that are in demand in the national labor market and determined by the resolution of the Minister by the workers’ classification approved by the Cabinet.
Scope of application of the non-compete clause.
It should be noted that to apply the non-compete clause there should be an ongoing employment relationship, which application is also limited to the employees that have access to the employer’s clients’ information, and business secrets and intend to work in the same activity after the end of the current employment relationship. Therefore, there is a misconception that the non-compete clause applies to all employees.
The legislator also explained that the use of this clause is applicable only if the employee’s labor relationship is terminated (either by resignation or by the employee’s failure to comply with the terms of the employment contract, which will result in the termination of the labor relationship).
The important point addressed by the legislator is that a possible labor case for violating the non-competition clause can be registered from the date of the employer’s discovery of the breach and not from the date of termination of the labor relationship.
Conditions for validity of non-compete clause
First condition: Geographical location: must be restricted to a maximum of 3 emirates within the country.
Second condition: Time Period: The maximum is two years from the termination of the employment contract. A lesser duration can be agreed.
Third condition: The employee shall work with a competing employer and would cause serious harm to the previous employer; such damage shall only be assessed by the courts.
Exceptions to the non-compete clause.
Since the non-compete, clause was intended to protect the employer in the first place, the legislator allowed certain exceptions to the application of this clause, as follows:
Case I: Agreement to suspend the employment contract provided that both parties shall not compete together, and such agreement must be written.
Case 2: that the employee or new employer pay compensation to the old employer up to a maximum of 3 months’ salary, in such case the old employer’s consent is required.
Case 3: If the labor relationship ends during the probation period, it should be mentioned that it does not matter who is the party who terminated the labor relationship.
Case 4: Special cases to be assessed by the Minister according to labor market needs.
Consequences of breaching the non-compete clause.
In case the employee breaches the non-compete clause, the legislator states that the employer has the right to resort to the courts to claim adequate compensation for the damage suffered.
However, the employer must prove:
- Date of knowledge of the worker’s breach of the non-competitive clause
- Significant harm caused by an employee’s breach of the non-competitive clause.
Conclusion
The working environment in the UAE is constantly evolving and faces many challenges as a result of increased investments. It is therefore necessary to maintain stability in the labor market by protecting the rights of the parties to the labor relationship, the non-compete clause being one of the legislators’ tools for maintaining such stability.
For further information or legal assistance please do not hesitate to contact us on the following number or email address: +97144221944 or reception@alsafarpartners.com – www.alsafarpartners.com.
Written By:
Mr. Obada Al Khatib – Senior Legal Consultant & Head of Employment at Al Safar and Partners Law Firm
